Gas Could Easily Go To $5 And Crush The National Economy

Everyone is talking about gas this past week, and for good reason. The price at the pump has been tearing higher. According to the papers this morning the national average price for regular gas is $3.65. Unfortunately for me, the price the media is spouting has nothing to do with my cost. As of this morning, my local gas guy is charging $4.85 for premium fuel, and that’s the stuff my car uses.

I doubt the numbers being bandied about regarding prices at the pump actually reflect the real economic consequences.

I’ll probably take some flack for this, but I believe it’s true. The only thing that matters is the price of gas in California and New York.

The USA has evolved into a two-tier gas market. The supply of crude from Canada and the Bakken fields has created a lower cost of supply for the central portion of the country. This differential is most notable in the market spread between WTI (a futures contract that settles physical delivery in Oklahoma) and LLS (Louisiana Light Sweet Crude) – the pricing of crude for the big Gulf refineries.